Research › Search › Judgment

Delhi High Court · body

2005 DIGILAW 266 (DEL)

TRIVENI ENGINEERING WORKS LTD. v. UNION OF INDIA

2005-02-28

J.P.SINGH, VIJENDER JAIN, VUENDER JAIN

body2005
Vijender Jain, J. ( 1 ) THIS writ petition, inter alia, raises the question as to whether the incentive scheme which was initially declared by the respondent on 6. 12. 1975, as modified on 17. 12. 1979 and revised on 15. 11. 1980 as contained in Annexure A, available to a new sugar factory, can be denied to the already existing (but re- modelled) factory of the petitioner? Mr. Shanti Bhushan, learned counsel for the petitioner has contended that the petitioner s factory was altogether a new unit, having invested a sum of Rs. 8. 30 crores. It is argued that the petitioner was entitled to the incentive on the basis of the cost which worked out to be Rs. 6. 56 crores. It has been contended before us by Mr. Shanti Bhushan that the objective of the scheme was to have more production of sugar and the scheme was formulated by the respondent keeping in view the fact that the sugar plants in the country had become obsolete. They required new capital as well as modernisation of plants and machinery. Learned counsel for the petitioner has emphasised that for achieving this objective the government had issued the scheme so as to enable such sugar factories to expand their capacity after scrapping the old sugar factories and installing altogether new factories by adopting the new techniques of sugar production as well as by replacement of old plants and machinery. Learned counsel for the petitioner has contended that practically there is no difference between a new sugar factory and an existing sugar factory which has been modernised by scrapping its old sugar mill and, therefore, two different yardsticks cannot be made applicable in terms of the policy because the policy of the incentive scheme postulates that a new sugar factory and an existing sugar factory which was completely re-modelled by installing a new plant and machinery, i. e. both, should achieve the main objective of the scheme. It was contended that even an existing sugar factory which not only wanted to expand the capacity but had entirely changed the plant and machinery would also fall in the same category on the basis of the definition of Section 13 of the Industries (Development and regulation) Act, 1951. Section 13 of the Act is to the following effect :- 13. Section 13 of the Act is to the following effect :- 13. Further provision for Licensing of industrial undertakings in special cases.-- (1) No owner of an industrial undertaking, other than the Central Government, shall -- (A) in the case of an industrial undertaking required to be registered under Section 10, but which has not been registered within the time fixed for the purpose under that section, carry on the business of that undertaking after the expiry of such period, or (B) in the case of an industrial undertaking the registration in respect of which has been revoked under Section 10 A, carry on the business of the undertaking after the revocation, or (C) in the case of an industrial undertaking to which the provisions of this Act did not originally apply but became applicable after the commencement of this Act for any reason, carry on the business of the undertaking after the expiry of three months from the date on which the provisions of this Act became so applicable, or (D) effect any substantial expansion of an industrial undertaking which has been registered [or in respect of which a licence or permission has been issued], or (E) change the location of the whole or any part of an industrial undertaking which has been registered, except under, and in accordance with, a licence issued in that behalf by the Central government, and, in the case of a State Government, except under and in accordance with the previous permission of the Central Government. (2) The provisions of sub-section (2) of Section 11 and section 12 shall apply, so far as may be, in relation to the issue of licences or permissions to any industrial undertaking referred to in this section as they apply in relation to the issue of licences or permissions to a new industrial undertaking. Explanation.-- For the purpose of this section, substantial expansion means the expansion of an existing industrial undertaking which substantially increases the productive capacity of the undertaking, or which is of such a nature as to amount virtually to a new industrial undertaking, but does not include any such expansion as is normal to the undertaking having regard to its nature and the circumstances relating to such expansion. (emphasis supplied) on the basis of the explanation to clause (d) of Section 13 of the Act, mr. (emphasis supplied) on the basis of the explanation to clause (d) of Section 13 of the Act, mr. Shanti Bhushan laid emphasis on the words starting after or which is of such a nature as to amount virtually to a new industrial undertaking . What was contended on the basis of aforesaid explanation was that the case of the petitioner would fall under clause (d) of the explanation to Section 13 of the Act, as the substantial expansion would be of a nature which would amount to a new industrial undertaking. It has been contended that from the plain language of Section 13 of the act and in view of the explanation, for an existing unit to effect any such substantial expansion the same has to be done pursuant to a licence issued by the respondent. It was argued by the learned counsel for the petitioner that for a new industrial undertaking the licence was to be granted under Section 11 of the Act. Section 11 of the Act is to the following effect :- 11. Licensing of new industrial undertakings -- (1) No person or authority other than the Central Government, shall, after the commencement of this Act, establish any new industrial undertaking, except under and in accordance with a licence issued in that behalf by the Central Government; provided that a Government other than the Central Government may, with the previous permission of the Central Government, establish a new industrial undertaking. (2) A licence or permission under sub-section (1) may contain such conditions including, in particular, conditions as to the location of the undertaking and the minimum standards in respect of size to be provided therein as the Central government may deem fit to impose in accordance with the rules, if any, made under section 30. It was also emphasised before us that one has to see the purpose of the incentive scheme and in this regard our attention was invited to certain paragraphs of the scheme, which is annexure A to the writ petition. It is important to quote the objective of the scheme, which is at page 45 of the paper-book. It was also emphasised before us that one has to see the purpose of the incentive scheme and in this regard our attention was invited to certain paragraphs of the scheme, which is annexure A to the writ petition. It is important to quote the objective of the scheme, which is at page 45 of the paper-book. The same is as under : to mitigate the hardship caused to the Sugar industry, in the establishment of new sugar factories and for effecting substantial expansions in the existing sugar factories, caused by a steep rise in the cost of plant and machinery needed for such sugar projects; the Government sanctioned a scheme in November, 1975 to provide incentives to the new sugar factories and expansion scheme. The incentive consisted partly of higher percentage of levy free sugar quota and partly of concessions in excise duty. The scheme came into effect from November 1, 1975 and envisaged that new factories and expansion projects should, over a period of 5 years from the date of commencement of production/completion of expansion, be compensated for the shortfall likely to be incurred on account of the burden imposed by the higher capital cost. In 1978, there was a major change in the sugar policy i. e. the control on the price, distribution, release and movement of sugar was lifted with effect from August 16, 1978. As a result of this decontrol the classification as Levy and levy free sugar no longer existed and the benefits under the incentive scheme were no longer available. Under the circumstances, the Government undertook an examination of the various altered parameters for revising the scheme. Meanwhile with effect from december 17, 1979 the sugar policy has again been modified to provide for partial control, with dual pricing as was the situation prior to August 16, 1978. After considerable deliberations, the Government have formulated and accepted a revised scheme to provide incentives to the new sugar factories and expansion projects by a two lever operation as was the case in the earlier scheme. In support of his arguments, learned counsel for the petitioner has cited commissioner of Central Excise, Shillong Vs. North-Eastern Tobacco Co. Ltd. (2003) 1 SCC 161 and Collector of Central Excise Vs. In support of his arguments, learned counsel for the petitioner has cited commissioner of Central Excise, Shillong Vs. North-Eastern Tobacco Co. Ltd. (2003) 1 SCC 161 and Collector of Central Excise Vs. Neoli Sugar Factory 1993 (65) ELT 145 , where Supreme Court observed as under :- It is then argued by the learned counsel for the appellant that exemption notifications should be strictly concluded. There is no quarrel with the proposition but there is another equally valid principle that such notifications should be given their due effect, keeping in view the purpose underlying. We must reiterate that no factory owner would keep his factory idle during a particular period only with a view to produce sugar during the same period in the next sugar year and earn rebate in the next year. More particularly, it can not reasonably be expected that a factory-owner would deliberately keep his factory idle during the peak production period (December to April) only with a view to produce sugar during that period next year and earn rebate in such next year. It would be unrealistic to say so. Actually these notifications were being issued every year confined to that year. They were being issued just on the eve of the sugar year or a few days after the commencement of the sugar year and there were variations in the relevant clauses from year to year. Construed realistically, we see no room for any absurdity resulting from our interpretation. The case of October-November appears to be rather an exception. Normally, it appears, no factory-owner commenced the production of sugar in these months because of several unfavourable factors. Indeed, these unfavourable factors appear to be present to a large extent even during the months June to September. These notifications were evidently meant to compensate the factory-owners for producing during these months as well. As stated already, one must proceed on the assumption that every industrialist and businessman would, ordinarily, like to produce as much more as possible, since, normally speaking, more production means more profit. Learned counsel for the petitioner further placed reliance on Tata Oil mills Co. Ltd. Vs. Collector of Central Excise 1989 (43)ELT 183 , where it was observed as under :- we are of opinion that the view taken by the Excise Authorities as well as by the tribunal proceeds upon too narrow an interpretation of the notification. Learned counsel for the petitioner further placed reliance on Tata Oil mills Co. Ltd. Vs. Collector of Central Excise 1989 (43)ELT 183 , where it was observed as under :- we are of opinion that the view taken by the Excise Authorities as well as by the tribunal proceeds upon too narrow an interpretation of the notification. It is true, as mr. Ganguli contended, that an assessee claiming relief under an exemption provision in a taxing statute has to show that he comes within the language of the exemption. But in trying to understand the language used by an exemption notification, one should keep in mind two important aspect : (a) the object and purposes of the exemption and (b) the nature of the actual process involved in the manufacture of the commodity in relation to which exemption is granted. So far as (b) is concerned, it is common ground before us that rice bran oil as such is not directly used in the manufacture of soap. Rice bran oil contains glycerol and other impurities which have to be removed by a process of hydrolysis or hydrogenation and it is only the resultant purified rice bran oil that is actually used in the manufacture of soap. In fact, the Tribunal has given a clear finding that a pre-treatment to rice bran oil is required to be done as a matter of necessity for its use in the manufacture of soap. Thus even a factory which consumes rice bran oil in the manufacture of soap in its factory first converts the oil into hydrogenated oil or fatty acid and then manufactures soap out of the latter. So far as (a) is concerned, the object of the notification - as even the Tribunal finds - is to grant a concession to a manufacturer of soap who manufactures soap from rice bran oil to a substantial extent and thus discourage the use of edible oils in the manufacture. If these two aspects are considered together, it is clear that the emphasis in the notification is not that rice bran oil should be used as raw material in the very factory which produced the soap. The requirement is that the soap manufacture should, to a prescribed extent, be from rice bran oil as contrasted with other types of oil. If these two aspects are considered together, it is clear that the emphasis in the notification is not that rice bran oil should be used as raw material in the very factory which produced the soap. The requirement is that the soap manufacture should, to a prescribed extent, be from rice bran oil as contrasted with other types of oil. The contrast is not between the use of rice bran oil as opposed to rice bran fatty acid or hydrogenated rice bran oil; the contrast is between the use of rice bran oil as opposed to other oils. That is the ordinary meaning of the words used. These words may be construed literally but should be given their fullest amptitude and interpreted in the context of the process of soap manufacture. There are no words in the notification to restrict it to only to cases where rice bran oil is directly used in the factory claiming exemption and to exclude cases where soap is made by using rice bran fatty acid derived from rice bran oil. The whole purpose and object of the notification is to encourage the utilisation of rice bran oil in the process of manufacture of soap in preference to various other kinds of oil (mainly edible oils) used in such manufacture and this should not be defeated by an unduly narrow interprarguments that when the executive envisaged only two situations, i. e. establishment of a new sugar factory and expansion of existing sugar factory, no new kind of situation could be visualised or could be directed to be implemented by this court. It was also contended by Mr. Singh that licence was given to the petitioner on 16. 2. 1979 and petitioner filed writ petition in the year 1982. Learned counsel contended that the licence was given for substantial expansion and the license was not for establishment of a new industry, therefore, now petitioner cannot turn around and plead that they should be given the incentive as a new sugar undertaking. It was contended that the petitioner has not challenged the policy and, therefore, no fault can be found with the policy or its implementation. Counsel for the respondent has also cited Secretary, Ministry of Chemicals and Fertilizers, Govt. of India Vs. Cipla Ltd. and ors. (2003) 7 SCC 1 and D. C. M. Ltd. and Anr. Vs. Union of India and Anr. Counsel for the respondent has also cited Secretary, Ministry of Chemicals and Fertilizers, Govt. of India Vs. Cipla Ltd. and ors. (2003) 7 SCC 1 and D. C. M. Ltd. and Anr. Vs. Union of India and Anr. (1996) 5 scc 468 . We have given our careful consideration to the arguments advanced by learned counsel for both the parties. There is no dispute that the incentive scheme was adopted by the respondent to target the sugar production as envisaged in the 5th five Year Plan period. For that two methods were evolved by the respondents; one by establishing new sugar factories and second for effecting substantial expansion in the existing sugar factories visualising that there was a sharp and steep increase in the cost of plants and machinery required for the sugar industry and at that high cost new projects were not providing economical and viable units. Hence financial institutions were finding it difficult to advance term loans to the entrepreneurs of new sugar factories as well as to the existing sugar factories for effecting expansion and, therefore, the establishment of the projects so envisaged had received a serious set back, thereby delaying the achievement of targeted sugar production pursuant to establishment of a Committee of experts to suggest various incentives and other measures for making the new sugar factories and expansion cases economically viable units. The Government sanctioned the scheme in question to provide incentives to the new sugar factories and expansion scheme for existing factories in the form of relief regarding excise duty and higher percentage of levy free sugar quota to achieve the main objective. The whole dispute hinges around the question as to whether the petitioner should be treated for the purpose of incentive as a new sugar unit or a unit in terms of add-on production. The petitioner has scrapped the entire plant and machinery of the existing sugar factory except the utilisation of old machinery worth about Rs. 5 lakhs and has converted its existing unit into a new industrial unit by investing over Rs. 8. 6 crores. To understand the scheme we have to go back to the provision of Section 13 of the Act. Sub-section (d) of Section 13 is as under : section 13. (d) effect any substantial expansion of an industrial undertaking which has been registered [or in respect of which a licence or permission has been issued. 8. 6 crores. To understand the scheme we have to go back to the provision of Section 13 of the Act. Sub-section (d) of Section 13 is as under : section 13. (d) effect any substantial expansion of an industrial undertaking which has been registered [or in respect of which a licence or permission has been issued. As substantial expansion is defined in the explanation to the aforesaid section 13 which is already reproduced above, the legislature in its wisdom has included two kinds of industries; first a new factory which increased the overall productivity and second which undertakes substantial expansion so as to amount to virtually a new industrial undertaking with the same objective to increase overall productivity. When the language of Section 13 read with explanation regarding substantial expansion is unambiguous and clear, then to rely upon the scheme for interpretation of a new industrial unit and deny the benefit to an industry which otherwise would fall in the realm of a new industrial undertaking pursuant to the explanation to Section 13 of the IRDA is, in our view, arbitrary and whimsical. If the underlying object of the scheme was to give incentive so that new sugar factories could be set up and in case where existing sugar factories were in a position to have new industrial units on account of almost 100% re-modeling/restructuring by having new plant and machinery then not to grant the incentive which has been granted to a new industrial undertaking would be per se discriminatory. When these kinds of incentive schemes are floated the respondent should give a liberal meaning as has been held in Commissioner of Central Excise (supra ). Relevant paras of the judgment are as under : para 9. The exemption notification nowhere defines the words new industrial units. The object of exemption notification is obvious. It intends to encourage capital investment and establishment of industrial units in specified North- eastern States for the purpose of increasing production of goods, promoting development of industry and employment in the said regions. In the case of hindustan Aluminium Corpn. Ltd. v. State of U. P. this Court emphasised that the notification issued under the Act, should not only be confined to its grammatical meaning or ordinary parlance but it should also be construed in the light of the context. In the case of hindustan Aluminium Corpn. Ltd. v. State of U. P. this Court emphasised that the notification issued under the Act, should not only be confined to its grammatical meaning or ordinary parlance but it should also be construed in the light of the context. It was reiterated that the expression should be construed in a manner in which similar expressions have been employed by those who framed relevant notifications. Therefore, there is a need to derive the intent from a contextual scheme. Para 10. The other important principle of interpreting an exemption notification is that as far as possible liberal interpretation should be imparted to the language thereof, provided no violence is done to the language employed. Therefore, by applying the principle as enunciated by the Apex Court in the above case, what this Court has to see is whether any violence is done to the language of the scheme. The Scheme operates in two different fields with regard to grant of incentives. For development of a new industrial unit lower excise duty for five years. The percentage of levy free quota of sugar for different slabs of the F. O. R. cost of plant and machinery and for low, medium and high recovery areas in appendix 1 and second incentive to the industrial undertaking is that instead of the higher free sale quote allowed, the new sugar factory will be required to pay excise duty in accordance with normal rates applicable to the existing units on the basis of 65:35 ratio of levy and free sale sugar. With regard to the expansion scheme incentives are as follows:- (iii) The percentage of levy free quota of sugar in the high, medium and low recovery areas would be as follows :- (iv) the levy-free quota of sugar mentioned at (iii) above is subject to the following conditions :- (a) the higher levy-free quota of sugar shall be reckoned on that much of production in a sugar season, which is in excess of the average production during 3 sugar seasons preceding the season in which the expanded capacity commenced production, and in case of factories which had worked for less than 3 seasons before completion of expansion, the average of the actual period worked would be taken as the base. (b) Any shortfall in production during the 5 year period in which the incentives are available as compared to average for the base period would be carried over to the subsequent season for adjustment. With regard to the payment of excise duty in spite of the higher free sale quota, the expanded unit will be required to pay excise duty in accordance with the normal rates applicable to the existing units on the basis of 65:35 ratio to levy and free sale sugar. Therefore, if an existing unit has completely changed its plants and machinery and established a new factory which it is entitled to do under substantial expansion, then why the benefit of the same should not be given to it, does not appeal to reason. We do not find any force in the arguments of learned counsel for the respondent that petitioner s unit cannot be construed to be a new factory as there is no element of setting up of a new factory viz. , procurement of land, employment of workers, purchase of new plants and machinery etc. In our view, when the Act itself visualises the establishment of a new factory, under the words substantial expansion occurring in clause (d) of Section 13 of the Act read with explanation to the said Section then no other meaning or definition can be ascribed to the words substantial expression. As a matter of fact, the incentive scheme itself underscores the same in this context. At page 65 is a letter from Ministry of agriculture and Irrigation dated 7. 2. 1979 and clause (8) is relevant :- 8. The cost of old plant and machineryeither for new sugar factories or expansion project will not be taken into account. Therefore, the utilisation of old machinery of approximately Rs. 5 lakhs was not to be taken into account for the purposes of granting incentive in terms of the scheme. The parameter which ought to have been taken into consideration by the respondent was whether the substantial expansion so carried out by the petitioner was within the four corners of the permissibility of explanation to Section 13 of the Act. The respondent fell in error by not adverting to the definition of substantial expansion and reading the scheme in isolation of the main object of the scheme. This petition was filed almost 23 years back. The respondent fell in error by not adverting to the definition of substantial expansion and reading the scheme in isolation of the main object of the scheme. This petition was filed almost 23 years back. Learned counsel for the respondent also argued that petitioner having applied in proforma B and C cannot now agitate for grant of incentive under proforma A, which pertains to new industrial unit. We have perused the letter of the petitioner which is at page 76 of the paper-book which categorically mentions in paragraph 5 that their application in proforma B and C for claiming incentive under the expansion of existing sugar factory was without prejudice to their claim for incentive as a new unit and it was only as a matter of abundant caution they were submitting the proforma B and C. As a matter of fact, in the said letter it has been specifically mentioned that the petitioner had submitted their claim in proforma a for a new sugar unit, which was returned to the petitioner in March, 1982 (page 129 of the paper-book), when the cause of action accrued for filing the petition. Though, there are no hard and fast limitation rules for filing a writ petition under Article 226 of the Constitution of India, we find no delay or latches in this matter and this meets the objection of the learned counsel for the respondent that there was delay in filing the writ petition. The case of Secretary, Ministry of Chemical and Fertilizers (supra) cited by learned counsel for the respondent does not help the respondent. The Apex Court in para 4. 1 of the said judgment held : 4. 1 It is axiomatic that the contents of a policy document cannot be read and interpreted as statutory provisions. Too much of legalism cannot be imported in understanding the scope and meaning of the clauses contained in policy formulations. At the same time, the Central Government which combines the dual role of policy- maker and the delegate of legislative power, cannot at its sweet will and pleasure give a go-by to the policy guidelines evolved by itself in the matter of selection of drugs for price control. The Government itself stressed on the need to evolve and adopt transparent criteria to be applied across the board so as to minimize the scope for subjective approach and therefore came forward with specific criteria. The Government itself stressed on the need to evolve and adopt transparent criteria to be applied across the board so as to minimize the scope for subjective approach and therefore came forward with specific criteria. It is nobody s case that for any good reasons, the policy or norms have been changed or have become impracticable of compliance. That being the case, the Government exercising its delegated legislative power should make a real and earnest attempt to apply the criteria laid down by itself. The delegated legislation that follows the policy formulation should be broadly and substantially in conformity with that policy, otherwise it would be vulnerable to attack on the ground of arbitrariness resulting in violation of Article 14. As a matter of fact, the aforesaid ruling helps the case of the petitioner as the Central Government which combines the roles of a policy maker and the delegatee of legislative power cannot at its sweet will and pleasure give a go bye to the objective of the policy by giving different interpretations to the same objective and in this regard we must note that the policy was framed by the Ministry of Agriculture whereas the licensing part is done by the Ministry of Industrial Development. Both the ministries of the Government, as a matter of fact, should have worked so as to achieve the objectives of the policy. The reliance placed by learned counsel for the respondent on DCM s case (supra), in our considered view, is not applicable to the facts and circumstances of this case. When the petition was filed and it came up for hearing on 28. 4. 1982, this court passed certain interim orders. For the reasons cited above, we allow the writ petition. Interim orders are made absolute. Writ petitioners are discharged from their undertakings. Writ petition Nos. 1100/86, 631/85 and 184/81 are also disposed of in view of the order passed in this Writ petition. .